Forensic Accounting

Category - Specialized Forensic Knowledge

How are software development costs accounted for per the guidelines of GAAP?
  1. Entire cost is expensed out
  2. Expensed up to the point where the project becomes technically feasible
  3. Expensed only for a single period
  4. Shown as a deferred liability
Explanation
Answer: B - Software development costs are expensed up to the point where they achieve technical feasibility. These costs are initially treated as an expense, but only to the extent of it acquiring technical feasibility. Only up to that point are these costs treated as a regular expense on the financial statements; after that period, when deemed technically feasible, the software development costs are capitalized.
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